Thursday, December 12, 2013

Staunton, December 12 – A
combination of President Vladimir Putin’s promises and declining federal
assistance to the regions is pushing many of the federal districts deeper into
debt, preventing them from spending on social and transportation
infrastructure, and in prospect driving them toward default, according to analysts
at Standard & Poor’s.

In today’s “Nezavisimaya gazeta,”
Anastasya Bashkatova points out that the regions are incapable of fulfilling
Putin’s promises and directives -- such as raising pay in the health education
and culture sectors -- while meeting their other obligations and thus are heading
toward disaster (ng.ru/economics/2013-12-12/1_regions.html).

Yesterday,
S&P warned that the regions cannot reduce their spending on other
responsibilities enough in order to cover what Putin has called for.As a result, their combined deficits will be “several
times” larger than Moscow now projects. And the underfinancing of other sectors
will begin to bite, possibly forcing the revision of Putin’s promises.

Making the situation even worse, the
analysts say, is that because of a deficit in the federal budget, Moscow plans to
cut assistance to the regions by “more than five percent” next year, cuts that
will squeeze regional elites and hurt development in the regions even more than
now.

And also adding to the problems is
the lack of transparency in the process of regional transfers. Moscow sometimes
gives more to well-off regions than to poorer ones, apparently to maintain the
loyalty of regional elites rather than to ensure that programs be carried out.
And these elites thus feel free to ignore Moscow’s dictates and pocket the money
instead.

Consequently, Bashkatova says the
experts have concluded, the debt burden on the regions will only grow even as
Putin-mandated programs are not carried out in full and many other needs are
not met.

Analysts at Standard & Poor’s
suggest that there are threepossible
scenarios. In the first, Moscow will continue to demand that the regions
fulfill its orders, providing highly selective assistance in that regard. In
the second, Moscow would continue to provide assistance across the board while
giving most to those most in need.And in
the third, Moscow would revise Putin’s mandates so that the regions could cope.

At present, Bashkatova says, the
center appears likely to follow the first or some combination of all three. But
each of these strategies and even a combination of them have political
consequences, ranging from a regional fronde expressed in protests and simple
refusal to go along to a direct and broad-based challenge to Putin’s authority.

And just as at
the end of the Soviet period, these financial issues are likely to interact
with and be exacerbated by ethnic and regional identities and by an increasing
sense among Russians that Putin and his regime are spending outrageous sums of
money on “circuses” like the Sochi Olympics but not providing them with “the
bread” that is supposed to be the other part of the equation.